Gasping for Cash

How your carpet cleaning company handles growth and cash flow issues depends on how you plan for both the good times and the bad times.

by Michael Wilson

Several reports have come out in the past few weeks that indicate the booming real estate market may be headed for either a tapering off or possibly some tough times.

This is especially true in California and Washington State, as well as in areas around New York.

What often happens is these two areas of the country are the first to experience real estate trends – either things are getting better or things are slowing down – and as they evolve in these areas, they slowly work their way into the center of the country.

If the buying and selling of real estate is slowing down, this could be challenging news for the carpet cleaning industry. When sellers are selling their homes, among the steps they typically take to get their homes ready for sale is to have the carpet cleaned. And when buyers purchase a new house, and if the seller has not already cleaned the carpet, often the new buyers will have it cleaned. In either case, carpet cleaners come out the winner.

But if the buying and selling slows down, and if it slackens off significantly, all of these carpet cleaning jobs can dry up. This may not only negatively impact carpet cleaning companies financially, but for those that have recently purchased new carpet cleaning equipment, believing the good times would just keep on rolling in, a slowdown can have serious financial ramifications.

That equipment is often purchased on credit. While making the monthly payments may not have seemed like they’d be a problem while the phone was ringing off the hook with new jobs, with a slowdown, the company may be “gasping for cash.”

We should add that carpet cleaning companies may be gasping for cash due to another reason: many business owners are entirely focused on growth. When this happens, they may not spend as much time – or any time – focusing on costs, mounting bills, late paying customers, payroll, or the fact that some carpet cleaning jobs are just not profitable.

So what can owners do?

One of your best business advisors may be the same person that you purchased that carpet cleaning equipment from, along with all of your other carpet cleaning supplies. Many experienced distributors have already witnessed upswings and downswings in the real estate market as well as the economy in general. They have learned from experience what carpet cleaning business owners can do when times get difficult to smooth-out the rough edges.

For instance, an astute distributor might recommend the following:

Know your actual monthly income. We can’t hide under the covers with this or any of the points listed below. While monthly income can vary, owners must know about how much money they can expect to come in each month.

Know about how much money is needed to operate on a daily/monthly basis. This would include such operating costs as payroll (including paying yourself), fuel for vehicles, supplies, even things that often are overlooked such as lunch and highway tolls

Audit cleaning solutions. Owners should audit – analyze – all the cleaning solutions they select. Then, try to reduce the number of products purchased and select the best performing. This will result in a cost savings. Some distributors have online “dashboard” systems specifically made for this purpose. They can compare products as to costs, effectiveness, use, as well their impact on the environment.

Create a spreadsheet listing the following:

How much cash is in the bank right now

What is the status of accounts receivable; this would apply to commercial carpet cleaning accounts that typically pay within 30 days

How many new carpet cleaning jobs are booked for the next two weeks or month ahead; this will help create both income and cost projections

What is the approximate “value” of those future carpet cleaning jobs; if they are all homes of about the same size, then just multiply the number of jobs booked times the average charge

Next, and what is most important, is to take action based on these numbers. In many cases, when a company is gasping for cash, what they realize later is that they did not move fast enough to reduce their payrolls; evaluate the supplies they purchase: fire slow paying customers; eliminate less profitable customers that simply may not be worth the time and effort.

Next, in the future do not go through a situation like this alone. Many carpet cleaning companies, especially the larger and more successful ones, have regular “huddles” among their top people and often bring in their distributors. They discuss current and future finances, income, and expenses.

The distributor often has a much more objective view of how the company is doing and what they can do in the future to benefit the company. Always remember, they want you to succeed. You are their customer. The better you do, the better the distributor will do.

Michael Wilson is AFFLINK’s Vice President of Marketing and Communications. AFFLINK is made up of janitorial and carpet cleaning distributors throughout the U.S. In his free time, Wilson works with the Wounded Warrior Project, fishing, and improving his cooking skills. He can be reached at wmwilson@afflink.com.